Value
COMPANY VALUATION
Faqtum has evaluated Building Company Aktiebolag to

SEK 39,538,000

ThirtyNineMillionFiveHundredThirtyEightThousand

The company evaluation was performend by Sidon Benjaminsson
Valuation subject
Building Company Aktiebolag
Verkstadsg. 1
314 00 Hyltebruk

556999-9999 2011-09-20 SEK 39,538,000

Please note that the calculated value can vary from SEK 37,144,000 to SEK 42,250,000.

Value of the company (SEK)
Present value of the forecasted return on investment 2012-2018

19,972,000

Present value of the forecasted return on investment after 2018

19,565,000

Number of shares

1,000

Value per share

39537.69

Total present value of the company

39,538,000

Value Range (SEK '000)
Min
37,144

Value
39,538

Max
42,250

Sensitivity (SEK '000)
The table below shows sensitivity in the outcome of cost of capital and earnings growth respectively. It is
important to calculate using different scenarios when making a company valuation. The maximum value in
the table below is SEK 42,250,000 which is based on earnings growth amounting to 3.2% and cost of capital
amounting to 10.9%. The corresponding value for the minimum value is SEK 37,144,000 which is based on
earnings growth of 2.9% and cost of capital amounting to 12.1%.
Sensitivity (SEK '000)
Earnings growth

Interest
12.1%

11.5%

10.9%

2.9%

37,144

39,221

41,565

3.1%

37,438

39,538

41,906

3.2%

37,735

39,857

42,250

Valuation of Building Company Aktiebolag (556999-9999)

3

Value- Assumptions

Conditions (SEK '000)
The conditions which the above company evaluation is based upon are the following. For a more thorough
explanation on these please look further forward in this document.
Balance

28,556

Equity

11,702

Equity/assets ratio (sector)

28.5 %

Interest

11.5 %

Earnings growth

3.1 %

Balance sheet growth

2.8 %

Residual method (remainder)

Going Concern

Assumptions
• Earnings/profit after financial items are calculated to SEK 1,895,000 and are based on financial items up
until 1104.
• Calculated earnings/profit growth is set to 3.1 % on average.
• The difference between the historical average of the industry sector equity/asset ratio 28.5 % and the
most recent equity/asset ratio for the company 41.0 % determines the level of future distributable
earnings/profit. In this case the level will be higher.
• Please note that the assets in the balance sheet are taken into account based only on nominal/book value.
• P/E Ratio 11.4
• The cost of capital is adjusted from 13.5% to 11,5% according to the company's lower risk compared with
• Given the market position and establishment level, we have adopted going concern.

Sector Info
NACE 41 Construction of buildings
189 companies participated in survey.The activities grew strongly in Q2 when 55% of the companies
mentioned a increase.The prices was virtually unchanged, while the order backlog increased significantly.
At present, the order backlog, however, is too small according to 50% of the companies. Backlog duration
is 36 weeks in production at present.The number of employees increased and 59% cited labor shortages as
the biggest obstacle in bussiness.The expectations in Q3 2011 is a strong increase in construction and rising
prices.The backlog orders will also increase.The outlooks in the construction market in one year continues to
look bright.

Valuation of Building Company Aktiebolag (556999-9999)

4

Valuation model

Valuation model
The model is based on an investment theory which focuses on the current value of the forecast future
distributable earnings and the residual value at the end of the forecast period. The earnings on the investment
are intended to cover the buyerâ&#x20AC;&#x2122;s interest and amortisation payments. The present value computation of
future distributable earnings can be used in the valuation of all types of companies.
Firstly, the future distributable earnings are calculated. These consist of future income and the effect of
whether the company is under-capitalised or over-capitalised. The result of the latter depends on the level of
the equity/assets ratio. If a company has a higher equity/assets ratio for its sector than, for instance, 50% and
the average company in the sector has 20%, the company is over-capitalised and the difference is added to the
distributable earnings. The opposite is done if the company is under-capitalised. Our model is based on the
sector average for the equity/assets ratio of the respective company.
In addition to the calculation of the distributable earnings, a calculation is made of the companyâ&#x20AC;&#x2122;s residual
value at the end of the forecast period, i.e., the sale value of the company assets minus liabilities reduced by
the tax on the capital gain.
The cost of capital is the rate you wish to receive in earnings on the investment. One means of determining
the level of this could be to see what earnings alternative investments provide.
You as a customer can simulate the effect of the future scenario by changing one of the values in the model,
which will then have an immediate impact on the valuation.
We will later on in the document deal with all the variables included in the model and explain them in greater
detail.

Conditions (SEK '000)
Balance

28,556

Equity

11,702

Equity/assets ratio (sector)

28.5 %

Interest

11.5 %

Earnings growth

3.1 %

Balance sheet growth

2.8 %

Residual method (remainder)

Going Concern

Calculations (SEK '000)
2012

2013

2014

2015

2016

2017

2018

3.3

3.2

3.1

3.0

2.9

3.0

3.0

Calculated earnings

4,842

4,997

5,152

5,307

5,461

5,625

5,794

Calculated earnings after tax

3,569

3,683

3,797

3,911

4,025

4,146

4,270

(%)

Balance sheet growth (%)

Res.

2.9

2.8

2.7

2.7

2.6

3.0

3.0

Calculated balance sheet total

29,385

30,214

31,043

31,872

32,701

33,682

34,692

Opening balance Equity capital

11,702

8,375

8,611

8,847

9,084

9,320

9,599

Closing balance Equity capital

8,375

8,611

8,847

9,084

9,320

9,599

9,887

Dividends

6,896

3,447

3,561

3,675

3,788

3,866

3,982

89.7

80.4

72.1

64.7

58.0

52.0

46.7

46.7

6,185

2,772

2,569

2,378

2,198

2,012

1,859

19,565

Present value factor (%)
Present value

Valuation of Building Company Aktiebolag (556999-9999)

41,919

5

Valuation model- Explanations

Explanations
The table above contains calculations of the companyâ&#x20AC;&#x2122;s value for the respective year and below follow brief
explanations of the parameters included.
Forecast period
The length of the forecast period is determined by the availability of financial statements data. Calculations
can be based on shorter or longer forecast period, but the most common period is seven years, which has
been used in this model.
Calculated earnings
The value of the earnings has been calculated by multiplying last yearâ&#x20AC;&#x2122;s earnings by the earnings growth for
the current year.
Calculated earnings after tax
This is obtained by subtracting 26.3 % tax from calculated earnings.
Balance sheet growth
On the basis of historic values a calculation is made of average annual growth in the balance sheet total.
Calculated balance sheet total
This item is taken from the most recent annual accounts.
Closing balance Equity capital
This is obtained by multiplying the calculated balance sheet total by the equity/assets ratio, which gives the
percentage of equity capital in the total balance sheet.
Opening balance Equity capital
This item gives the opening balance for equity capital. This value is obtained from the previous year's closing
balance. To put it simply: "What you have in the till at the beginning of the year is what you had at the end of
the previous year".
Dividends
The total of the calculated distributable earnings for the current year. That is, opening balance equity capital +
the earnings for the year - the closing balance for equity capital.
Present value factor
Refers to the factor for calculating present value for each respective year.
Present value
The present value taking into account the present value factor and distributable earnings.

Valuation of Building Company Aktiebolag (556999-9999)

6

Industry Comparison

Industry Comparison
Positioning the company in relation to other companies in the same sector is an important component in a
valuation context. The following in-depth key ratio analysis illustrates the company's position in the sector
with regard to profitability, liquidity and consolidation. In addition to focusing on the figures for individual
companies, it is important to look at the trend, i.e. the change in the key ratios over time. Key ratios are the
mean values for the sector and are reported further on in a list of all key ratios.

The amount of net income returned as a percentage of shareholders equity. Return on equity measures a
corporation's profitability by revealing how much profit a company generates with the money shareholders
have invested. The ROE is useful when comparing the profitability of a company to that of other firms in the
same industry.
Calculating both beginning and ending ROEs allows an investor to determine the change in profitability over
the period. This measure is sometimes called private financial earning capacity. Return on capital employed
should as a generalization always be as great as, or greater than, the bank deposit rate plus a risk premium.
Otherwise it might be a financially better alternative for the owners to liquidate the company and put the
money in a bank account.

A ratio that indicates the efficiency and profitability of a company's capital investments. ROCE should always
be higher than the rate at which the company borrows; otherwise any increase in borrowing will reduce
shareholders' earnings.
A variation of this ratio is return on average capital employed (ROACE), which takes the average of opening
and closing capital employed for the time period.

A ratio that measures a company's earnings before interest and taxes (EBIT) against its total net assets. The
ratio is considered an indicator of how effectively a company is using its assets to generate earnings before
contractual obligations must be paid. The greater a company's earnings in proportion to its assets (and the
greater the coefficient from this calculation), the more effectively that company is said to be using its assets.
To calculate ROTA, you must obtain the net income figure from a company's income statement, and
then add back interest and/or taxes that were paid during the year. The resulting number will reveal the
company's EBIT. The EBIT number should then be divided by the company's total net assets (total assets
less depreciation and any allowances for bad debts) to reveal the earnings that company has generated for
each euro of assets on its books.

The ratio of net profits to revenues for a company or business segment - typically expressed as a percentage
â&#x20AC;&#x201C; that shows how much of each Euro earned by the company is translated into profits. Net margins will
vary from company to company, and certain ranges can be expected from industry to industry, as similar
business constraints exist in each distinct industry. A company like Wal-Mart has made fortunes for its
shareholders while operating on net margins of less than 5% annually, while at the other end of the spectrum
some technology companies can run on net margins of 15-20% or greater. Companies that are able to expand
their net margins over time will generally be rewarded with share price growth, as it leads directly to higher
levels of profitability.

Valuation of Building Company Aktiebolag (556999-9999)

8

Industry Comparison

EBITDA Margin
(%)
40,0
30,0

The company
Sector median

20,0
10,0
0,0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

A financial measurement used to assess a company's profitability by comparing its revenue with earnings.
More specifically, since EBITDA is derived from revenue, this measurement would indicate the percentage of
a company is remaining after operating expenses.
For example, if XYZ Corp's EBITDA is â&#x201A;Ź1 billion and its revenue is â&#x201A;Ź10 billion, then its EBITDA to sales
ratio is 10%. Generally, a higher value is appreciated for this ratio as that would indicate that the company is
able to keep its earnings at a good level via efficient processes that have kept certain expenses low.
However, when comparing companies EBITDA margins, make sure that the companies are in related
industries as different size companies in different industries are bound to have different cost structures, which
could make comparisons irrelevant.

EBIT Margin
(%)
40,0
30,0

The company
Sector median

20,0
10,0
0,0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

An indicator of a company's profitability, calculated as revenue minus expenses, excluding tax and interest.
EBIT is also referred to as "operating earnings", "operating profit" and "operating income. A profitability
measure equal to EBIT divided by net revenue. This value is useful when comparing multiple companies,
especially within a given industry, and also helps valuate how a company has grown over time. In other words,
EBIT is all profits before taking into account interest payments and income taxes. An important factor
contributing to the widespread use of EBIT is the way in which it nulls the effects of the different capital
structures and tax rates used by different companies. By excluding both taxes and interest expenses, the figure
hones in on the company's ability to generate profit and thus makes for easier cross-company comparisons.

A revenue or expense stream that changes a cash account over a given period. Cash inflows usually arise from
one of three activities - financing, operations or investing - although this also occurs as a result of donations
or gifts in the case of personal finance. Cash outflows result from expenses or investments. This holds true
for both business and personal finance.
In business as in personal finance, cash flows are essential to solvency. They can be presented as a record
of something that has happened in the past, such as the sale of a particular product, or forecasted into the
future, representing what a business or a person expects to take in and to spend. Cash flow is crucial to
an entity's survival. Having ample cash on hand will ensure that creditors, employees and others can be
paid on time. If a business or person does not have enough cash to support its operations, it is said to be
insolvent, and a likely candidate for bankruptcy should the insolvency continue. Cash flow is one of the
biggest concerns for small business owners. Faster cash flow turnover can mean more money to invest in
marketing, stock and people.

Net Assets (Turnover)
4
3

The company
Sector median

2
1
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

A measurement of the ability of management to use a company's net assets to generate sales revenue,
calculated as sales revenue divided by capital employed. Too high a number may indicate too little investment
while too low a ratio (relative to comparable companies) suggests inefficient management.
A company should manage its assets efficiently to maximize sales. The relationship between sales and assets is
called net assets turnover ratio. Net assets include net fixed assets and net current assets.

Valuation of Building Company Aktiebolag (556999-9999)

10

Industry Comparison

Stock Turnover
80
60

The company
Sector median

40
20
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Stock turnover measures how well a company converts stock into revenues. It is closely similar to asset
turnover and is also a measure of efficiency. Stock turnover is more specific than asset turnover. It measures
how well the company is making use of the part of its working capital that has been invested in stock.
Stock turnover is the main component of asset turnover for companies that have little tied up in fixed assets
but hold large amounts of stock, usually trading rather than manufacturing companies. For more capital
intensive businesses fixed asset turnover becomes more important.

One of many ratios used to measure a company's ability to meet long-term obligations. The equity assets ratio
measures the size of a company's after-tax income, excluding non-cash depreciation expenses, as compared
to the firm's total debt obligations. It provides a measurement of how likely a company will be to continue
meeting its debt obligations.
Acceptable equity assets ratios will vary from industry to industry, but as a general rule of thumb, a ratio of
greater than 20% is considered financially healthy. Generally speaking, the lower a company's equity assets
ratio, the greater the probability that the company will default on its debt obligations.

Gearing is a measure of financial leverage, demonstrating the degree to which a firm's activities are funded by
owner's funds versus creditor's funds.
The higher a company's degree of leverage, the more the company is considered risky. As for most ratios, an
acceptable level is determined by its comparison to ratios of companies in the same industry.
A company with high gearing (high leverage) is more vulnerable to downturns in the business cycle because
the company must continue to service its debt regardless of how bad sales are. A greater proportion of equity
provides a cushion and is seen as a measure of financial strength.

This is a key measure that companies and organisations often use. It is a particularly important ratio in
people-orientated businesses, such as those in the service sector, as they aren't selling a product, they're selling
people and relationships. So companies that make money primarily by people talking to customers value
this measure because these businesses are naturally more reliant on their employees. As this measure is more
relevant to some companies than others, it's important to establish whether it is considered significant to your
company. If it is less important then there will be similar measures that you can use for the same purpose, for
example, productivity per employee, customer satisfaction scores or, in the public sector, something like cost
per employee. Understanding this and similar measures will enable you to better evaluate your initiatives or
client requests in terms of the likely impact they will have on this ratio, and subsequently whether it would be
considered 'good for business'.

An important ratio that looks at a company's sales in relation to the number of employees they have. This
ratio is most useful when compared against other companies in the same industry. Ideally, a company wants
the highest revenue per employee possible, as it denotes higher productivity.

Costs of Employees / Operating Revenue
(%)
40,0
30,0

The company
Sector median

20,0
10,0
0,0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

The ratio gives a picture of how wage-intensive the enterprise is compared with similar companies in the same
industry.

Total annual labour costs divided by average annual number of employees per month, converted into full-time
units. This ratio indicates the average cost (excluding overhead allocations) of each person employed.

SEK 1,895,000
Present value SEK 1,895,000
How is the value calculated?
The value of the earnings has been calculated as a weighted average of the results over the past 5 years. The
weighting is achieved by giving the later years greater weight than the earlier years. To avoid extraordinary
income and expenditure, the financial statements item "net profit" is not used, instead the item "earnings after
financial items" is used.
Why adjust?
If the earnings do not agree with the expected earnings for the company this year, an adjustment can be
made. The earnings figure should also be adjusted if the income or expenditures entered in the books is not
normal. For instance, a closed company owner can deduct an overly high or low salary as an employee in
relation to the other employees.

Earnings growth
(%)

2012

2013

2014

2015

2016

2017

2018

3.3

3.2

3.1

3.0

2.9

3.0

3.0

Average figure 3.1 %
Historical average 0.0 %
How is the value calculated?
The value of the growth in earnings is calculated as the growth between the average value of the earnings
in years 1-2 and years 3-5 in the financial statements. To avoid extraordinary income and expenditure, the
financial statements item "net profit" is not used; instead the item "earnings after financial items" is used.
Why adjust?
It may be difficult to assess growth in earnings with the aid of historical data. For instance, the earnings may
be affected by profits being transferred from one financial year to another. To gain the most correct value
possible, one should base the calculation on the budgeted sales for the early years. For the later years, one
should calculate a growth that one assesses to be sustainable over a long period.

Valuation of Building Company Aktiebolag (556999-9999)

15

Opening values- Balance sheet total

Balance sheet total
SEK 28,556,000
Present value SEK 28,556,000
How is the value calculated?
The item balance sheet total is obtained from the most recent annual accounts.
Why adjust?
The company's assets are entered into the books at book value. This can for several reasons be different from
the actual value. For instance, machinery or goods that have been written down may still have a value, or
correspondingly goods with a book value may have a lower value due to damage etc. Please note that equity
capital on the liability side is not automatically affected by an adjustment in the balance sheet total. The equity
capital has to be edited manually to change.

Balance sheet total growth
Balance sheet growth (%)

2012

2013

2014

2015

2016

2017

2018

2.9

2.8

2.7

2.7

2.6

3.0

3.0

Historical average -0.1 %
How is the value calculated?
We have calculated an average annual growth in the balance sheet total on the basis of historical values.
Why adjust?
Large investments may be necessary for future expansion. These investments give the company greater
growth in its balance sheet total than has previously been possible. The company may also have been through
a strong expansionary phase that is now complete. The balance sheet total will in this case not increase as
much as it has done previously.

Equity capital
SEK 11,702,000
Present value SEK 11,702,000
How is the value calculated?
The item total equity is obtained from the most recent annual accounts. Added to this is the item total
untaxed reserves minus 26.3 % tax.
Why adjust?
If the balance sheet total is changed, the equity capital may need to be adjusted. See balance sheet total.

Valuation of Building Company Aktiebolag (556999-9999)

16

Opening values- Equity/assets ratio

Equity/assets ratio
28.5 %
Sector median* %
Company's equity/assets ratio: 41.0 %
* Construction of residential and non-residential buildings.
How is the value calculated?
The equity/assets ratio gives the percentage of equity capital in relation to liabilities and is an important factor
in the valuation. To determine whether the company is under-capitalised or over-capitalised, we compare
the company's equity/assets ratio with the sector median for the sector in which the company operates.
If the company's equity/assets ratio is higher than the sector average, the surplus will increase the level of
distributable earnings and vice versa, i.e., if the equity/assets ratio is below average, the distributable earnings
will decrease.
Why adjust?
The capital structure is dependent on the percentage of liabilities and equity capital. If the companyâ&#x20AC;&#x2122;s
equity/assets ratio is too low, i.e., it has an overly high percentage of liabilities in relation to equity capital,
problems may arise in the event of expansion or an economic recession, and if the equity/assets ratio is too
high, i.e., the equity capital is overly high in relation to the liabilities, the return on equity will be lower. The
required return for equity capital is normally higher than that for loan capital.

Cost of capital
11.5 %
Original value 13.2 %
How is the value calculated?
The cost of capital is the interest one wishes to receive in earnings on the investment. Cost of capital is an
important component in the valuation and consists of two sub-components, which together will comprise the
total cost of capital.
â&#x20AC;˘ Here we have used as a base the earnings on the government borrowing rate, which is usually called the
"risk-free interest rate" at constant price stability.
â&#x20AC;˘ Given that investors are exposed to greater uncertainty, it is common to calculate a risk premium. This can
vary depending on what risk level is calculated, but a sustainable standard rate is 7% - 10%.
Why adjust?
If one is not aiming for a general value for the company, but wishes to see how the value relates to other
investments. After an acquisition, for instance, the financing of loan capital may be different, which could
involve a change in the debt interest. The ratio between loan capital and equity capital is also decisive (read
more in the previous section on the equity/assets ratio). Moreover, there may be a different required return
on the equity capital.

Valuation of Building Company Aktiebolag (556999-9999)

17

Opening values- Method for calculating the residual value

Method for calculating the residual value
Going Concern
The value of the company includes, in addition to the distributable earnings, the companyâ&#x20AC;&#x2122;s value at the end
of the forecast period. This residual value can be calculated in two ways. One is to calculate a liquidation
value, i.e, the assets minus the liabilities. The other is to calculate a "going concern" value, which means that
the company continues at the same profit level as the final year of the forecast period indefinitely.
The method used depends on the nature of the company. If it is a small company, which is dependent on
one or several key employees, it is not likely that the company will be active indefinitely. In this case the
value is determined by means of the liquidation method. On the other hand, if the company is large and not
dependent on key persons and assumed to be able to continue generating earnings far into the future, the
going concern method should be used.

Responsibility of Faqtum
There is no such thing as a definitive value for a company, i.e., the value is based on the given opening values
in the valuation model. Faqtum cannot therefore guarantee that this valuation should be construed as a
definitive or final valuation in, for example, the case of a sale or purchase situation. Faqtum do not take
any responsibility for direct or indirect losses or damages, of any nature whatsoever, based on use of the
valuation.

Created 2011-09-20 by Sidon Benjaminsson, analyst.

The FAQTUM group delivers company valuations to more than fifty countries.